Dorothy Collings retired in April at 53, a year and half after her 60-year-old husband. Her plan is to spend time with new grand-twins, help her aging mother, and travel to some of the national parks with her husband. Retiring wasn’t an easy decision: “We were both raised to work and save for retirement,” she says. “That’s what life was for us. Pulling from a portfolio is an emotional process.”That emotional shift was just the first challenge, Collings found. Trying to tap a lifetime’s worth of savings—enough to enjoy retirement but not so much that you imperil your later years—has never been easy, but it’s about to get a whole lot harder. “It’s the worst time to retire since just before the dot-com bubble burst,” says David Blanchett, head of retirement research for Morningstar. It’s the downside of a decadelong bull market in stocks and a 35-year bull market in bonds: Rising market volatility, rising inflation, rising interest rates, and an uncertain economic outlook all point to much lower expected returns—all of which is far more dangerous to a portfolio that is being drawn down rather than still accumulating. Of course, retiring just ahead of the financial crisis or dot-com bust was painful, but in both cases the near-term outlook for market returns was far better than it is today.All of this makes the current situation for recent and near-retirees especially dicey, even for those who have amassed a good nest egg. Retirement calculators often use historical average market returns—as much as 12% for stocks and 6% for bonds—but even the rosiest of optimists don’t expect anything near that over the next decade. Blanchett expects stocks to return less than 4% and bonds just 2% over the next decade. Add in his expected inflation rate of more than 2%, and the outlook for returns is pretty dismal.The Collingses consulted a couple of financial advisors through their companies, and took a personal finance course offered at a local college; all suggested the 4% rule—an old rubric stating that you withdraw 4% of your assets in your first year of retirement, and then take that same dollar figure every year, adjusted for inflation, throughout retirement. But Collings and her husband, who live in the northern suburbs of Chicago, sought out more personalized advice and found an advisor who took a more conservative approach, leading them to decide on a 3% withdrawal rate.

The first wave of baby boomers had the wind at their backs, with a bull market, little volatility, and benign inflation that made winging it possible. The next crop of retirees, and those who recently retired, may not be so lucky. Everyone wants a simple, set-it-and-go formula, but the twists and turns of retirement—and the market—require a more complicated strategy that allows, even encourages, flexibility. Today’s new thinking relies on two primary factors: the mix of assets in your portfolio—stocks, bonds, pensions, annuities, even your homes and Social Security—and how you tap those assets. “The rules of thumb have nothing to do with your plan or the life you want to live. They just leave retirees stressing over a decision that may have zero impact on their long-term success,” says Dana Anspach, who runs Scottsdale, Ariz.–based financial planning firm Sensible Money. “The key is a plan that gives you a range of possible outcomes and lets you know that if I spend this today, will the 80-year-old me be OK.” Yet one rule of thumb—the so-called 4% rule—has dominated retirement thinking. Financial planner William Bengen, the architect of the rule in 1994, proposed taking an initial 4% out of a portfolio that was half in stocks and half in bonds, and adjusting that dollar figure by inflation each year. This, he found, created a strong probability the portfolio could last 30 years, even during the worst U.S. market stretches dating back to 1929. Bengen, now retired himself, says the rule he proposed in 1994 was never intended to be a de facto formula, and he also revised it (with little fanfare) to a 4.5% initial withdrawal rate in 2006 after incorporating small-cap stocks into the portfolio.

Today, Bengen says he has retested the 4.5% rule, and it still holds—and is in the ballpark that his own financial planner uses for his portfolio. But Bengen is not wedded to the rule, allowing that it is based on past market behavior and that a period of low returns alongside a sharp and sudden rise in inflation could be problematic. “You can’t just expect it to work for 30 years without adjustments,” Bengen says. “That’s like shooting a rocket to Jupiter and never making any changes.” Wade Pfau, director of retirement research for McLean Asset Management, whose work on the topic is closely followed, sees several problems with the rule. For starters, 30 years is too short; advisors should plan for a life expectancy of 100. Plus, the rule was based on a static portfolio that had half of its assets in stocks for the entire time, a high allocation by most standards. Using global market data, Pfau says the rule only works two-thirds of the time—but the bigger problem is today’s low interest rates and high stock market valuations. “We are in unchartered waters,” says Pfau, who says the rule, adjusted for some of these issues, would allow retirees an initial withdrawal of barely 3%.Adjusting Your PortfolioSo what are near- and new retirees to do? For starters, forget about determining some perfect withdrawal rate: That is dependent on how your portfolio is invested and how flexible you can be in your spending. Today, advisors approach it with a range of 2% to more than 6% in mind. Those who have more of their spending needs covered by guaranteed income—Social Security, pensions, or annuities—can often take a higher initial rate, as can those who can tolerate some swings in their annual budget. Guaranteed income is the one variable that boosts initial withdrawal rates the most—by more than four percentage points depending on the amount of a portfolio that is in guaranteed income, according to research by Morningstar’s Blanchett (see graphic “How Much Can You Withdraw?”).

Illustration: None

Start with Social Security. It’s hard to find consensus around retirement income strategies, but one piece of advice gets near-unanimous support: Delay taking Social Security until you’re 70, even if you need to tap a taxable account to meet expenses in the meantime, says Marguerita Cheng, head of Blue Ocean Global Wealth. Social Security is guaranteed income for life, and the payouts are adjusted for inflation, which will probably rise in the near future. What’s more, every year (until you turn 70) that you delay claiming your benefits, the amount you’re entitled to grows 8%. That’s a far better return than you’ll likely get on stocks, not to mention it’s guaranteed. Think about this: If your full retirement age is 66, delaying for four years could increase your benefit by 32%. This gain often outweighs the tax you’ll owe from withdrawing from an IRA or 401(k), Cheng adds, especially given today’s historically low tax rates and the fact that many people drop into a lower bracket once they stop working. The advice is especially relevant for women, who tend to live longer, and are often married to an older partner, and therefore may be reluctant to draw down their savings too early. “Their expenses may be higher earlier in retirement, but when she is 82, her spouse may not be there,” Cheng says. “The money taken out of their account will be replenished eventually when she starts Social Security.”Beyond Social Security, guaranteed income can be hard to come by—and here is where a series of counterintuitive strategies come into play. No pension? Consider creating your own income stream via a low-cost immediate annuity for a portion of the portfolio. Academics have long advocated for this strategy, but it is rarely used, since people are often reluctant to “tie up” a significant portion of their retirement savings in a low-returning vehicle. Another option is a deferred-income annuity, also known as a longevity annuity, which addresses the fear of outliving your assets while tying up less money. These contracts can be bought at any time, and they typically kick in after age 85. While a 65-year-old man would need to hand over $200,000 for an immediate annuity that pays him a lifetime monthly income of $1,100, he could buy a deferred-income annuity for just $30,000 to get that $1,100 payment once he turns 85. These annuities are sometimes available in a qualified plan like a 401(k), or can be purchased in an IRA, which offers additional tax benefits, Pfau says: Investors can put up to $130,000 into a deferred-income annuity within an IRA or 401(k) that won’t be subject to the required withdrawals that the IRS mandates when you turn 70½.

This guaranteed income serves two main purposes: It allows you to take more risk in the rest of your portfolio, and provides the flexibility—and peace of mind—to spend more early on, when you’re most likely to enjoy it. This is no small factor in planning: A recent study by Employee Benefit Research Institute, a nonpartisan think tank, looked at retirees’ spending behavior and found that many were reluctant to draw down their savings—so much so that retirees with $500,000 or more in assets spent less than 12% of their nest eggs in the first 20 years of retirement. “We have to acknowledge that people feel safe by having money in the bank or an account they can look at, even if they can afford to spend more,” says Steve Vernon, a research scholar at the Stanford Center on Longevity. That’s one reason advisors are increasingly eyeing the $14 trillion in home equity that Americans are sitting on as a source of income, and incorporating that into retirement planning. Like annuities, reverse mortgages—once thought to be the domain of unscrupulous salespeople taking advantage of retirees’ fears—have made a comeback. The industry has been cleaned up, and today’s reverse mortgages can offer a safer and smarter way for some retirees to tap the huge gains in their homes. Homeowners who are 62 or older and plan to stay in their homes can convert some of their equity into a lump sum payment, a monthly income stream, or a line of credit. This alternate way of borrowing against home equity is repaid when the house is sold, typically after the borrower dies. It’s not for everyone: Borrowers need to keep paying property tax and insurance, the upfront costs are high, and rules are in flux. In October, the Trump administration lowered the amount that could be borrowed to about 58% of the home value and raised upfront costs for some homeowners. Still, some advisors see it as a viable option, especially as a contingency reserve that lets retirees increase how much they can pull from the rest of their portfolio. Another counterintuitive note about portfolio allocation: Retirees should consider increasing their stock allocation as they age. Conventional wisdom dictates that retirees begin with bigger stock allocations to provide enough growth to ensure the portfolio can sustain them throughout retirement, and gradually reallocate to bonds as they age and need to draw down more and have less appetite for risk. But Pfau, along with Pinnacle Advisory Group’s Michael Kitces, have made the case for the opposite: Retirees should start with less, like 30%, in stocks, and work up to 60%. Market volatility early on in retirement can be detrimental to a retiree’s long-term plan, and any losses early on can be very difficult to recover. Given that stocks are at pricey levels—the cyclically adjusted price/earnings ratio, or CAPE, is at 33, double the long-term median—this is especially salient advice today. Morningstar’s Blanchett sees little upside to having an aggressive portfolio at the moment.Your Withdrawal RateSo how much can retirees actually withdraw? It depends in large part on their spending flexibility. Patricia Miller is a gynecologist in Huntsville, Ala., who started a blog, DoctorofFinanceMD.com, in part because she found that so many of her fellow doctors were struggling with these issues. Miller, 60, had planned to retire at 61. She is beginning to close down her practice, but now says she may work part-time at a local hospital. Miller is well-prepared, and has three years’ worth of living expenses in cash she can draw on if the market falls. Plus, she’s willing to be flexible in her spending: “If we encounter a bad bear market, foreign travel becomes domestic,” Miller says. One of the myths about retirees is that they’re unable to tolerate variability in their annual spending, but that doesn’t hold up under scrutiny, says Anna Rappaport, a veteran retirement consultant and fellow at the Society of Actuaries. In fact, a recent SOA survey of those 85 and older showed that increased expenses for dental or medical expenses or home repairs didn’t have a major impact on their finances. The EBRI study also showed that retirees have been living largely off the income and gains thrown off from their portfolio, rather than tapping principal. Sudipto Banerjee, the author of the EBRI study, who is now at T. Rowe Price, said uncertainty about the future—longevity, the need for long-term care, medical catastrophes—may have contributed to retirees’ desire to just live off returns or income from a portfolio rather than dipping into the principal. Not to mention the difficulty of switching from decades of trying to get account balances to grow, to becoming comfortable watching them decline. The trouble is that as inflation and market volatility rises, living off gains could become more precarious.The task then is deriving an initial amount to draw from a portfolio. For retirees doing it themselves, Vernon proposes using the required minimum distribution formula that the Internal Revenue Service lays out for people once they turn 70½. It’s not perfect, but it accounts for market volatility, by calculating the year’s spending amount off the portfolio balance, and longevity, via mortality tables. The initial rate for a 65-year-old, for example, would start at 3.5% and rise to 5.35% at 80. One drawback is that spending starts slow, and can swing along with markets. For context, drawing from a balanced portfolio during the financial crisis would have triggered a 25% spending cut, Vernon says, adding that big swings are easier to swallow if you have a source of guaranteed income covering your biggest expenses.There are several dynamic withdrawal strategies that adjust spending, typically based on market gains, creating a floor or ceiling. Financial planners Jonathan Guyton and William Klinger suggest a “guardrails” approach that lets retirees start with a higher withdrawal rate. In its simplest form, it allows spending to increase faster than inflation if markets are doing well, in return for sacrificing the inflation boost if the portfolio is in the red. The details are more complex, with four broad rules, including using a cash reserve to fund spending needs if the portfolio is declining. There are also parameters around spending cuts and increases, such as taking the inflation-related boost only if the new withdrawal rate as a percentage of the current portfolio balance exceeds the initial rate. For a retiree invested in a 75% stock and 25% bond portfolio, the initial withdrawal rate can be as high as 5.9%—or 4.6% for a more moderate portfolio. Some advisors—and Pfau—favor a strategy borrowed from pension plans that matches assets with liabilities, rather than focusing on a withdrawal rate. Advisors use a bucket approach: The first bucket covers five to 10 years of spending, and is funded with guaranteed income, bond ladders, and, as rates rise, stable value funds or two-year CDs if the money is in a tax-advantaged account or the retiree is in a low tax bracket. By setting aside this money, it keeps retirees from having to pull from a portfolio that is in decline to pay for near-term costs. The bucket is replenished from gains in the other buckets, and in a downturn advisors can wait a year or two, until the portfolio is in positive territory, to refill the bucket. The second bucket is intended to fund more variable expenses—like travel or entertainment—and is typically invested in a mix of bonds and stocks, increasingly dividend-oriented to fend off inflation. The third bucket funds bequests and can be invested more aggressively in stocks. For those without an emergency fund, advisors can carve out gains from these portfolios to cover unexpected expenses, such as $18,000 dental implants or $20,000 to help a child with substance abuse. That’s a relatively easy task during a bull market. But Joe Heider, founder of Cleveland-based Cirrus Wealth Management, worries about complacency. “The dilemma is if those ‘unforeseen’ expenses become somewhat of a regular occurrence. If the markets fall 20% and the kids have become accustomed to that money, it’s going to be problematic.”These complexities are exactly why retirees latch on to anything that looks like a formula to use, but those can push retirees off course. The best strategy, says Anspach, is a plan that is updated over time and uses the same common sense most have used throughout their financial lives: If someone lost their job or the twins went off to college, dinners at home became the norm, while a promotion or strong run in the market made it a good time to renovate the kitchen: “It’s about bringing that same flexibility to retirement.” Retirement Income Funds Fall ShortThe confusion—even panic—over how to determine how much you can spend in retirement should be a rallying call for the fund industry. But so far, the attempts at solving this problem have been slow to roll out and most have missed the mark.The efforts fall into one of two categories—target-date retirement income funds, which are similar to what’s often found in 401(k) plans, and managed payout funds, which try to create a regular income stream from your portfolio. The two categories are quite different, and there are important distinctions within each of the categories. Target-date retirement funds are aimed at saving; they’re funds of funds that reallocate toward a more conservative mix of stocks and bonds as the calendar moves toward the year indicated in the fund’s name. (A 2050 fund, aimed at someone retiring 32 or so years from now, will have a more aggressive allocation than a 2020 fund.) Target-date retirement income funds are, in some cases, simply where your money ends up when you’ve hit your target date. Their allocations can vary meaningfully, just as they do in other target-date funds. For example, the $4 billion JPMorgan SmartRetirement Income (ticker: JSRAX) has 21% in U.S. stocks, 14% in foreign stocks, and 8% in cash; the $304 million Fidelity Freedom Index Income fund (FIKFX), which is aimed more for people who have been retired for 15 years, holds less than 25% in stocks and has 30% in cash. The differences among managed payout funds are even more stark. Conceptually, these funds sound like a good fix for retirees struggling with the withdrawal puzzle, but there’s a reason the entire category has a scant $5 billion in assets. These funds suffered from the problem many recent retirees and those approaching retirees are worried about: A market downturn early on is far worse than one a decade or so into retirement. Fidelity, Vanguard, and Charles Schwab, the earliest entrants, launched their managed payout funds just ahead of the financial crisis. It did not go well. Some were forced to return principal to investors; others had to tweak their approach. That approach is important: Some managed payout funds operate like an endowment, aiming to preserve capital and generate the payouts from the income the portfolio produces. Others offer larger payouts by strategically drawing down the principal; some even plan to liquidate entirely by a certain date. Understanding how these funds are constructed is crucial, says Jeff Holt, an analyst at Morningstar.

If you know the other and know yourself, you need not fear the result of a hundred battles.

Sun Tzu

We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.